National or Regional Currency: Pakistani Rupee, PKR
Population: 174,578,558 (July 2009 est.)
Area: total: 796,095 sq km
Status: 27th largest economy in the world in terms of purchasing power, and the 45th largest in absolute dollar terms.

Wednesday, January 26, 2011

Economy on verge of collapse, Hafeez tells MPs

ISLAMABAD: The country is facing unprecedented economic challenges and the economy is in dire straits. And if drastic measures are not taken urgently, the budget deficit could exceed eight percent of the GDP (equivalent to Rs1,370 billion) against the target of 4.7 percent while inflation could swell to over 22 percent.

Finance Minister Dr Hafeez A Shaikh presented these disturbing figures while briefing the parliamentary leaders of some political parties on the economic situation of the country. Federal Minister for Water and Power Raja Pervaiz Ashraf and Federal Minister for Petroleum and Natural Resources Naveed Qamar represented the government.

Senator Professor Khurshid Ahmad of Jamaat-e-Islami told media persons after the briefing that the country’s economy was on the verge of collapse. The parliamentary leaders of the political parties in the next meeting to be held next week will come up with their recommendations and suggestions to wriggle the country out of the economic morass.

But, at the same time, Dr Hafeez claimed that in the first six months of the current fiscal, the government has performed very well and managed to achieve 2.9 percent fiscal deficit against the target of 3.3 percent.

As far as eight percent budget deficit is concerned, the minister said that the government needed the support of all the political parties for major steps to bring the economy on track, failing which the economy was bound to nosedive. The minister, however, in the same breath said that the president, prime minister and political leadership would not allow the economic landscape to deteriorate to such a level.

The government has reduced the expenditures and achieved budget deficit of less than three percent in six month period. The minister said that the government was in contact with all the political parties and the consensus is that fiscal discipline had to be maintained.

Khurshid said the meeting was told that although all major sectors of the economy present a bleak picture, there are some positive signs also as exports are improving and will hit the $22 billion mark this year. Likewise, remittances have also increased substantially and will cross $10 billion. Apart from it, the government is also expecting a bumper wheat crop.

He said that the government should concentrate on reducing non-development expenditures and establish good governance. “Corruption is rampant, which should be checked with prudent steps.”

The government has already reduced the development budget, first from over Rs400 billion to Rs280 billion which was further slashed to Rs180 billion. According to one estimate given by the government, the size of tax evasion has increased to a staggering Rs700- 750 billion while corruption amounts to over Rs300 billion. The government is also spending huge amount on debt servicing, defence and security. It has already spent 35 percent more that the budgeted target on defence and security in the first six months of the current fiscal.

“I have suggested to the government to come up with integrated and coherent economic policies along with good governance,” Prof Khurshid said, adding that if the tax evasion and corruption were contained, the country will have a major increase in its revenue.

He said the current shape of the Reformed GST was not acceptable and in case the government introduces some changes in the existing RGST, then the Jamaat-e-Islami will be ready to review it.

To a question, he suggested that the government should avoid increasing the power and POL prices. Instead, it should concentrate on reducing 30 percent line losses through better efficiency.

Munir Aurakzai, parliamentary leader of Fata members in parliament, urged the government to rationalise expenditure. Salman Siddique, FBR Chairman, told our sources that in the month of December, FBR’s performance has been outstanding as it managed to collect Rs159 against the target of Rs147 billion and in the month of January, it has so far collected Rs72 billion in 22 days. To a question, he said that out of $1.3 billion arrears under the head of the Coalition Support Fund, Pakistan has managed to get $743 million.